Good day and welcome to the Sensata Technologies Second Quarter 2020 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Jacob Sayer, Vice President of Finance. Please go ahead.

Thank you, Constantinos and good morning everyone. I would like to welcome you to Sensata’s second quarter 2020 earnings conference call. Joining me on today’s call are Jeff Cote, Sensata’s CEO and President and Paul Vasington, Sensata’s Chief Financial Officer. In addition to the financial results, press release that we issued earlier today, we will be referencing a slide presentation during today’s conference call. A PDF of this presentation can be downloaded from Sensata’s Investor Relations website. We will post a replay of today’s webcast shortly after the conclusion of today’s call. As we begin, I would like to reference Sensata’s Safe Harbor statement on Slide 2. During the course of this conference call, we’ll make forward-looking statements regarding future events or the financial performance of the company that involve certain risks and uncertainties. The company’s actual results may differ materially from the projections described in such statements. Factors that might cause such differences include, but are not limited to, those discussed in our Forms 10-Q and 10-K as well as other subsequent filings with the SEC. On Slide 3, we show Sensata’s GAAP results for the second quarter of 2020. We encourage you to review our GAAP financial statements in addition to today’s presentation. Most of the subsequent information that we will discuss during today’s call will relate to our non-GAAP financial measures. Reconciliations of our GAAP to non-GAAP financial measures are included in our earnings release and in our presentation material the company provides details of its segment operating income on Slides 10 and 11 of the presentation, which are the primary measures management uses to evaluate the business. Jeff will begin with a review of our overall business during the second quarter, including the impact from COVID-19 and the strong financial position of the company. He will also discuss Sensata’s revenue growth relative to our end markets during the second quarter and first half of 2020. He will then provide an update on recent progress in some of our key megatrend growth areas, including the recent acquisition of PRECO Electronics. Paul will then cover our detailed financials for the second quarter, provide a description of changes in our financial model and liquidity position, provide insight into what we are expecting for our end markets for the balance of the year and then provide select financial guidance for the third quarter of 2020. We will then take your questions after our prepared remarks. Now, I would like to turn the call over to Sensata’s CEO and President, Jeff Cote.

Thank you, Jacob and welcome everyone. I’d like to start with some summary thoughts on our performance as outlined on Slide 4. Sensata recognized the global impact of COVID-19 early, and we took a wide range of actions designed to protect our employees and enable us to meet essential customer demand while enhancing our financial flexibility. Our focus on these priorities and quick action helped us navigate through this unprecedented environment. These actions will help position Sensata to emerge from this worldwide disruption stronger so that we can better serve our customers, employees and shareholders as well as the communities in which we operate. The lockdowns and quarantines that were instituted by governments around the world in response to the spread of COVID-19 caused the end markets we serve to decline almost 40% during the quarter. Our strong market outgrowth during the quarter offset a portion of this market decline, which resulted in our net revenue contracting by 33.9% organically. For the first half, our net revenue decreased 22.3%. We delivered market outgrowth of 750 basis points in our heavy vehicle off-road business, and 890 basis points in our automotive business for the second quarter and 840 basis points and 750 basis points through the first half of 2020, respectively. Certain customers have delayed some of their product launches for the second half of the year, which will impact our market outgrowth in Q3 and Q4. However, we continue to be confident that our market outgrowth for 2020 and beyond will be sustained in the range of 600 basis points to 800 basis points for heavy vehicle off-road and 400 basis points to 600 basis points for automotive, in part due to our continued new business wins. During the quarter, we closed over $125 million of new business wins, as…

Thank you, Jeff. Key highlights for the second quarter, as shown on Slide 9, include revenue of $576.5 million, a decrease of 34.8% for the second quarter of 2019. Organic revenue decreased 33.9%, largely due to the impact of the COVID-19 pandemic and change in the foreign currency decreased revenue by 0.9%. Adjusted operating income was $75 million, a decrease of 63.4% compared to the second quarter of 2019, primarily due to lower revenues, productivity headwinds from our manufacturing facilities operating at significantly lower capacity, elevated costs to safeguard our employees and local government restrictions, which all together, impacted our ability to align our costs to contracting end markets. These items were partially offset by temporary cost reductions in the quarter, including salary reductions and furloughs as well as savings from repositioning actions taken last year. Adjusted net income was $27.7 million, a decrease of 81.6% compared to the second quarter of 2019. Adjusted EPS was $0.18 in the second quarter, a decrease of 80.6% compared to the prior year quarter. Now I’d like to comment on the performance of our two business segments in the second quarter of 2020. I will start with Performance Sensing on Slide 10. Our Performance Sensing business reported revenues of $385.2 million, a decrease of 40.2% compared to the same quarter last year. Excluding the negative impact from foreign currency of 0.9%, Performance Sensing reported an organic revenue decrease of 39.3%. Our Automotive business reported an organic revenue decrease of 41.6% but outpaced its end market by 890 basis points. Revenue outgrowth was strong in all major end markets, led by new sensor launches in mission-critical emissions, electrification and safety applications. Pricing was favorable when compared to the prior year quarter. Our heavy vehicle off-road business reported an organic revenue decrease of 31.5% but…

Thank you, Paul. Before turning over to Q&A, I want to wrap up with a few key messages, as outlined on Slide 18. We continue to monitor all of our end markets and customers to ensure that our resources are balanced against forecasts and prioritized against critical growth opportunities, and we have taken the necessary actions to align our costs with the market. We remain confident in our ability to deliver attractive end market outgrowth for the full year 2020 and into the future. And this confidence is supported by strong new business wins. We continue to deliver solid free cash flow, which demonstrates Sensata’s resilient financial model, and we ended the quarter with more than $1.2 billion in cash on hand. We continue to invest in our megatrends and other growth initiatives that are opening up significant new markets for Sensata. And we are making excellent progress as evidenced by the $108 million in new business wins in electrification so far this year and the customer engagement on Smart & Connected. In addition, we continue to believe that the overall market environment may provide interesting opportunities to further strengthen our portfolio through strategically important value-creating acquisitions such as PRECO Electronics. Now I’d like to turn the call back to Jacob.

Thank you, Jeff. For participants, Jeff and Paul are in separate locations this morning, so feel free to direct your questions to one or the other of them. Also, given the large number of listeners on the call, I would ask each of you to limit yourself to one question and a follow-up. Constantinos, if you would please assemble the Q&A roster.

We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Mark Delaney with Goldman Sachs. Please go ahead.

Yes good morning and Thank you for taking the question To start, I was hoping to better understand the reason Sensata as being more conservative than IHS for North American and European auto production in the third quarter. Is this conservatism on the part of Sensata in case there is COVID-related factory shutdowns that are anticipated or in case retail demand were softened or is this more about what your customers are telling you their production build rates are going to be?

Yes. Thanks for the question, Mark. So let me just frame it. We are lower than IHS in terms of expectations in North America and Europe and were slightly higher in China. The net difference is about 1.7 million vehicles across that range, which is substantial in terms of the impact that, that would have on Sensata’s revenue. There are really four key factors that weighed into our decision around this. The first is clearly regarding caution associated with potential resurgence and lockdowns and impact on demand that would result in. There are also some differences between us and what we believe IHS is forecasting regarding the shutdown schedule with our customers, which we are tracking on a customer-by-customer basis. And then the other factors are relating to just generally understanding our customer order patterns. We are coming off a period of time where the volatility and customer order patterns have been substantial. And until we get a better feel for the orders and how they will materialize into revenue, we are taking some caution on that. You will note that, historically, the order patterns going into the quarter is our best indicator of performance in the quarter. But certainly, we are coming off a period where that isn’t as much the case. And then the last factor, which is a smaller one, is just the general automotive supply chain and the risk that we would not or our customer wouldn’t have a disruption in demand or orders, but there might be some other implication in the broader supply chain, and so we are cautioning for all of the factors which we have outlined. Obviously, if things turn out better, we are prepared to be able to deliver, but it’s based upon all of that input.

That’s really helpful, Jeff. Thank you. And for my follow-up question, the Company mentioned in the prepared remarks about the good wins in electrification and even being an acceleration compared to what the Company was realizing in new wins than a year ago despite the pandemic. What do you think is leading to that acceleration in bookings? And maybe you can level set investors about where Sensata’s content per car stands now for an EV compared to internal combustion engine vehicles? Thank you.

Sure. So that and the old quote was across the company. So it’s not just automotive, and there is a substantial portion of that, that is outside of the automotive market. My view is to why that is accelerating is that every customer around the world as the electrification trend is continuing, is accelerating their internal programs. We knew that there was going to be eventual escalation as they prepare to launch new platforms that will be more driven toward electrification trends. And so that is what we are seeing. We had talked about the order book that or the – not the order book, but the opportunity book that we have with our customers, which is very substantial as well. And so it is the material – it’s basically that opportunity set materializing. In terms of content per vehicle, in the U.S. and Europe, I will speak generally, it’s in the high-30s to low-40s in terms of content per vehicle. When we look at a battery electric vehicle, it is higher than that in the 50% range. So the trend associated with conversion from internal combustion engine to electrification is a positive trend in terms of content per vehicle and therefore, revenue for Sensata.

Thank you, Mark. Constantinos, can we have the next question please?

The next question is from the line of Deepa Raghavan with Wells Fargo. Please go ahead.

Hi, good morning, all. This question is for Jeff. Just tagging on that comment where you mentioned accelerating internal programs just based on those electrification trends in triangulating to your business wins. In the past, the business wins that were awarded converted over a three-year to five-year time frame, roughly. Is that still the same or does that push to electrification change that time line?

Yes. So it’s pretty much the same where it’s variable. Remember, the $108 million is across dozens of programs. So there are lots of factors to consider, but the general development time line associated with electric vehicles is equivalent to that of a combustion engine. When we start to talk about wins in some of the other markets, it may be a shorter period than what we might be normally accustomed for automotive or heavy vehicle off-road, especially when you go into the industrial markets, but the electrification wins in those markets are consistent with those markets, which may tend to be a little bit shorter in terms of the development cycles.

Thanks. My follow-up is on your thoughts. It’s a little bit of a longer question, but Jeff, can you talk through how the summer production schedule is shaping up? And if I – let’s just say, if we assume stable macros here, when can we expect to return to a more normalized level of production? By that, I don’t necessarily being back to pre-COVID, but more from an equilibrium perspective. I am assuming the summer production was skewed to the upside a little bit. But – and if you can focus – and if you can just talk through the key regions, U.S. Europe and China on how that normalized production expectations would be from your end, that would be helpful? Thank you very much.

Sure. So let me speak to the summer shutdown question first, and then I can go to the comment around normalized demand profile globally. So as I mentioned, we are tracking customer shutdowns at the customer level. What I would tell you is that the observation I would make based upon reviewing that is that for the most part, when you get into the tier level below the OEM, there is a general theme of canceling summer shutdowns. And my expectation is that, that is to catch up to make sure that they are ready to be able to deliver to the broader supply chain. When you get to the OEM level, whether it be in automotive or in heavy vehicle or in other markets, it tends to be a little bit more variable. Some are continuing the same shutdown schedules, some are shortening it, and some are canceling it altogether. And again, I suspect that, that is largely driven based upon the demand they see, their inventory positions, how stable their manufacturing operations are. And so it’s a wide range across those. But the point of their – at the tier level, they tend to be stopping summer shutdowns to try to catch up on demand. And we are seeing signals of that in terms of all of us in our everyday lives in terms of availability of product that we want and the supply chain disruptions that have occurred. And as demand is snapped back, that’s created some issues in terms of availability of product. In terms of returning to more of a normalized level, that is obviously a very difficult question to answer. But let me break it down a little bit geographically to give you a little bit of insight. So from a China standpoint, things…

Thanks, Deepa. Constantinos, can we have the next question, please?

The next question is from the line of Samik Chatterjee with JPMorgan. Please go ahead.

Hi. Good morning. Thanks for taking my question. This is Bharat on for Samik. So, if I could just start with the industrial end market and you highlighted in your prepared remarks that you expect the outlook to improve through the year, so if I could just ask what are some of the pieces of business or sub-segments that are maybe stronger versus the other? And if you could also help us think about how big a exposure you have within the medical end market within industrial? Thanks.

Yes. So the medical end market is not a huge portion of our overall industrial business, but it is an important one. And we took it, obviously, very seriously as these customers started to come to us to look for help associated with temperature or pressure sensors in the market. Across the significant parts of industrial, we have some big segments associated with material handling that we serve major home appliances, lighting, industrial lighting. So there are a variety of end markets. It’s truly a diversified industrial segment. But it is important to note in the second quarter, the impact associated with medical devices was about a $10 million impact associated with the revenue related to that initiative that we had. So it felt good to get the revenue. It felt good to serve the community in terms of being able to deliver on that.

Got it. Thanks for that. And if I could just ask on the acquisition you made in the quarter of PRECO Electronics. You noted that is primarily for HVOR end market right now. So if you could talk about any synergies that you see in terms of leveraging that technology for end markets such as automotive as well in the long-term? Thanks.

Yes, absolutely. So I think that it’s – today, PRECO is largely serving the on-road and off-road heavy vehicle markets. Again, where there is regulation forthcoming associated with vulnerable road users, pedestrians and cyclists on the road, as you can imagine, with a large vehicle, the risk that the driver doesn’t observe those pedestrians or bicyclists is significant. And so there is regulation associated with that. It’s a very difficult application because the radar applications need to work with a wide range of truck configurations. And equipment configurations articulating vehicles, and so the radar required – the radar solution requires a lot of application-specific knowledge, and software development to make it work in a way that there are not false positives or negatives that would make the application unusable on the road. Beyond the heavy vehicle off-road market, we see opportunities in other industrial applications as well. Less so in the light vehicle market, but it’s certainly something that we would be exploring in terms of going there, but it’s more around the industrial airport equipment and heavy vehicle off-road markets.

Got it. Thank you so much.

Next question is from the line of Matt Sheerin with Stifel. Please go ahead.

Yes. Thank you. Good morning. Jeff just wanted to follow-up on your commentary, near-term demand trends in auto, particularly relative to inventory in the supply chain. You did talk earlier about some headwind there, particularly in North America and Europe. How much does that play into your near-term forecast?

Yes. Thanks, Matt. It’s not a big number. We had talked about the first quarter there being about a $25 million inventory build. Specifically, as it relates to China customers, we think that migrated away from China into North America and Europe during the second quarter, so an equivalent amount. But we are getting to the level where it’s a little bit difficult to distinguish the exact amount, to be honest with you, Matt, in terms of the impact. But it’s not a huge number, and we would expect it to unwind by the end of the year. My sense is it’s – the volatility of our customer order patterns in terms of what they are seeing from demand is causing them to build a tiny bit of inventory and also just generally making sure that they have stock available as they build vehicles for the market. So it’s not a big number relative to the overall business, but it’s something that we thought worthy of calling out.

Okay. Thanks. And then just a question regarding the guidance for margins, backing into gross margin based on your operating profit and SG&A guide, it looks really like a very significant quarter-to-quarter contribution margin. And I know there is some cost-cutting. I think you talked about $7 million in savings from the cost-cutting initiatives. But what are the other drivers of that? And as we look to December based on expectations of sequential growth, should we expect a similar margin contribution or not?

Paul, would you like to take that please?

Sure. So in the remarks, revenue certainly is going to drive a lot of the margin expansion. So as revenues coming down, we were seeing a significant level of decremental margins because we were not able to adjust to our semi-variable and fixed cost to that volume decline quickly. But we did have significant savings in Q2 around furlough and pay cuts of $22 million. So, as you go forward into Q3, as the revenues rise, you see a similar improvement in decremental – in incremental margins in the high 40% range. We are going to see the $7 million come through from those cost actions that we are taking that are permanent. But we are not going to see the temporary cost saves because we are not putting those pay cuts and furloughs in place for Q3. So that’s the $15 million headwind there. $7 million of savings coming on and the $22 million, the temporary cost structure is not continuing. And then the volume ramping up is really what’s driving the significant improvement in operating profit and contribution from that higher revenue.

Thank you.

The next question is from the line of Wamsi Mohan with Bank of America. Please go ahead.

Hi, yes, thank you. I have one for Jeff and one for Paul. Jeff, your expectations for market outgrowth, you have alluded to those getting a little more subdued in the second half given some product launch push-outs. I was hoping you can share some more color on that? I mean, you are expecting sequential volume improvement. So is it the case that you are anticipating some large program roll offs? Or what are the puts and takes here that’s driving that in the second half? And I have a follow-up for Paul.

Yes, great. Wamsi, thanks for the question. So, just to make sure that the message you got across, we are still confident that for the full year and beyond, we will be within the ranges that we have quoted. We had a very strong first half year in terms of content growth or outgrowth. For the first half, we were at 750 basis points year-to-date in automotive and heavy vehicle we were at 840 basis points through 6 months. So, that’s above where the normal range was and confidence continues to be there. In terms of what we are seeing, that will impact the second half, it’s largely time phasing, in terms of the NS VI regulation, the deadline was July. So there was some pull ahead associated with that. And then there’s another impact associated with just time out at our customers in terms of the COVID period. So some of the launch activity that would normally have occurred, that was a little disrupted associated with time out-of-office during this very difficult time, has resulted in some temporary delays in terms of launches that were going to happen in the third and fourth quarter of this year. They are temporary. Nothing is canceling to any meaningful amount. Obviously, there are always some small amounts of movement associated with cancellations as customers refine this, but we are not seeing any major impact associated with cancellation. There are delays in the order of magnitude of, call it, 3 months to 6 months, and they are pushed through the following quarters. So we will see that coming in later, first part of 2021.

Okay. Thanks, Jeff. And Paul, you called out $60 million to $65 million in savings in 2021. Can you clarify if these are gross or net savings? And will they be pretty consistent across the quarters? And should we think of these savings as proportional to your revenue exposure by market or are they more concentrated in auto and aerospace? Thank you.

No, there – I would say they are spread evenly across the Company in terms of the business that are being impacted by the cost reduction programs. The $60 million, $65 million, it’s mostly people. It’s mostly related to the workforce reduction. There are other cost actions that we have in place around third-party spend and productivity improvements that are going to drive the $60 million to $65 million. A lot of it will be implemented this year in the second half. So, when we get into the first quarter, we should be at that run rate per quarter. So, we should get the full $60 million, $65 million in the year, and with it being at that full run rate, pretty much by the end of the first quarter. So that’s – and that aligns to the demand that we are expecting over the coming quarters.

Okay, great. Thank you.

Thanks, Wamsi.

Thanks, Wamsi.

The next question is from the line of Brian Johnson with Barclays. Please go ahead.

Yes. Just want to follow-up on decrementals then talk a bit about the ADAS opportunity. So when we think about the decrementals for 3Q on a year-over-year basis, I think I got the answer, which is the roll-off sequentially of the temporary cost reduction is what’s going to take your decrementals back to the higher end of the range, is that correct?

Well, the way I would think about it is that we laid this out that, right now our profit impact from volume is moving in line with our variable cost and our variable contribution. You can see in that pie chart, about half of our cost is variable. So when we lose $1 or gain a $1, it’s about a 45% to 50% impact. Now we weren’t able to get at the semi-variable cost in Q2, so we took temporary actions around furloughs and pay cuts. Now in Q3 and going to Q4, we are getting at those semi-variable costs. And that’s where the $60 million, $65 million highlighted in the chart, about 10%. The semi-variable costs running the $600 million range. So we are taking about 10% of those costs out now that’s what’s driving improvement in cost and so we are getting a combination of volumes are going higher, we are getting a variable contribution. And now we are getting at that sticky semi-variable costs that we weren’t able to action in the first half of 2020. Does that make sense?

Yes. Yes. My second question is really around your new acquisition and the role of ADAS in commercial vehicles. We have been aware, of course, of WABCO and others with vision-based systems, and that this is – seems a little bit different. But it gets to my question, which is, when you think of an ADAS solution, in addition to the sensors, whether it’s camera, radar, ultrasonic there’s, of course, a fair amount of algorithms around object identification, detection, left laning. Are you moving into that space or will you be working with Tier 1s who are already acting as CV ADAS integrators?

Yes. So we are not – a great question. We are not going fully off the stack on this, but it is a more complicated system than you would normally see in a pressure sensor or a high-temperature sensor for an application. So we are providing more information. There is more embedded software associated with it. And we are working both with OEMs and with Tier 1s depending on their choice on how they want to develop, those overall system architectures. Some OEMs choose to leverage a Tier 1 in the development of that. Others want to hold it more closely to what they are bringing to the market in terms of the differentiation there. So, it does depend on where we are – the ultimate customer approach on how they are doing it. But we are part of that overall system, both with Tiers and OEMs.

And a follow-on, there’s lot of discussion around LIDAR coming down in costs. Is that a market that you have relationships with? Do you see that coming into either commercial vehicle? Certainly, we have seen the Luminar trucks at CS or would you want to play a role either there in light vehicle?

Yes. So, this is a radar solution. PRECO does not have a LIDAR capability. You know that we have a partnership with Quanergy on solid-state LIDAR. That is not at the stage where it’s available to bring to market. So, right now, it’s largely the radar solutions that we are working on with PRECO to bring to market in this space that we are referring to.

Okay. And is your relationship with Quanergy exclusive or if you see better or different solutions can you take advantage of those?

Yes. It’s not exclusive. But again, right now, given that we have made the investment in PRECO and that there are opportunities that are growing very rapidly associated, which is the radar dimension, that’s our focus area. We continue to look at other object detection technologies to enable to – us to continue to build on this platform. But what we are announcing today is the small acquisition, but an important acquisition of PRECO associated with radar capability.

Okay. Thank you.

Thank you.

The next question is from the line of Joseph Spak with RBC Capital Markets. Please go ahead.

Thank you very much. Just wanted to go back to the outgrowth and you talked about that taking a step back in the back half even with the impressive 890 bps in the second quarter in automotive, but you compare that in the quarter versus the overall automotive industry. And when you look at your exposure, you are actually overweight versus the industry in North America and Europe versus China. So, like on a Sensata weighted basis, it actually suggest you did even better than that. So as we go forward and North America and Europe come back, why wouldn’t the outgrowth continue and remain strong and sort of the geographic weighting work in your favor?

Yes. So you are right, there is – outgrowth is not equal across all markets. We do tend to see both from new business opportunity standpoint and ultimately in the form of content growth or outgrowth, which new business turns into outgrowth several years later that there is more concentration in China than there is in other markets. And hey, you look at the content per vehicle China is half of what it is around the rest of the world. So, that fact is absolutely true. But all OEMs have had challenges associated with product launches. And so that aspect of that associated with the disruption that has occurred is not specific to North America and China. It’s a global challenge that has been – we are all dealing with. So, that’s the reason for the change going into the second half.

Okay. And then just on the inventory, I know you said it’s small, and we agree. But I just want to be clear, like when you talk about it unwinding by the – by year end, is that to your below IHS view of the industry meaning if IHS is correct, there is a little bit of extra conservatism in there?

Well, I am not sure, honestly, if some of the difference between us and IHS relates to inventory unwinding to these. To be true, that might be a factor of it. So again, if you are talking $25 million, maybe it’s $10 million, $12 million of the $60 million difference that we would have in the third quarter. So, there may be some of that that’s not factored in as well. That’s an accurate statement.

Okay. Thank you very much.

Thank you, Joe.

The next question is from the line of Craig Hettenbach with Morgan Stanley. Please go ahead.

Yes, thank you. A question for Jeff. Just thinking through the cost savings actions, the $60 million to $65 million, obviously, this has been a very unique cycle to say the least. But just how do you think through kind of this environment? And as you looked at the business, some changes that you can make just kind of more on a structural basis to improve margins?

Yeah. Thanks for the question, Craig. So let me first start by saying this was a – taking these actions was an incredibly difficult thing to do. we are talking about our people who are driving the business. And so I don’t want to minimize it. It’s necessary. We need to take action to respond to the unprecedented market changes. But I want to sort of formally thank the people who are impacted by this for their contributions over the years. These are very, very tough decisions. Having said that, we take lemons and turn them into lemonades in terms of what we do going forward. And so as we think about where we are going, as we hire back, as the growth resumes in the business and markets recover, we will hire in different locations, we will hire skill sets that are about the future for the Company. We do a lot of work to train and tool people that work with the Company for that as well. But clearly, we will take the opportunity with this market disruption to plan for the future in terms of where we are going as a business. We do that across people, we do that across where we need to manufacture as well, where our engineering needs to be to make sure it’s closer to where our customers are. So there is no question that when we get faced with these very difficult times, that we accelerate things that we have considered that we are now able to do in an environment that’s very challenging in terms of the markets that we serve. So, your point is valid. We have done that as part of this program.

I appreciate that context. And then just as a follow-up for automotive production, just thinking for the full year, I know it sounds like you guys are a little bit more positive on China and just maybe cautious on North America and Europe relative to IHS. But on a blended basis, I think IHS is down around 23% for the year. Are you close to that blended? Or how do you think about that for globally?

Yes. So, we are not providing full year guidance at this point. But that range is consistent with what we are looking at. And our view is, let’s get through the view of the third quarter. And as the order book develops, as we get a best feel for the markets in the fourth quarter, and as we have continued conversations with our customers, we weil forecast out into the fourth quarter and therefore, what the full year impact is. But as we had mentioned, we do expect a sequential improvement from Q2 to Q3 into Q4. So, what the numbers you are talking are directionally accurate, but refining them will come with time as we get a better view as to what we are seeing.

Got it. Thanks.

Thanks, Craig.

The next question is from the line of Tim Yang with Citi. Please go ahead.

Hey, thanks for taking my question. On pricing, you mentioned better pricing in Q2 in automotive market, can you talk about what’s driving the better pricing, and how sustainable it is?

Yes. So, what we mentioned is that a portion of the outgrowth is due to better pricing. Most of our contracts with our customers provide for volumes associated with the market. Obviously, when our customers engage with us and we contract with them, there’s an expectation around what that volume will look like. And when you have major disruption like this, the volume is lower. And so the recovery of that impact could be either in the form of better pricing or it could be in the form of new awards on new business. When we are given that choice, we always take new business, long-term growth for the Company, but there are some instances where we have seen some better pricing across our end markets, not just in automotive, when you have significant dips in volume in terms of what we are expecting in a quarter or in a year.

Got it. My next question is on the outgrowth that you mentioned would decelerate a little bit in the second half. Can you talk about how much of that moderation is due to customer inventory destocking and how much of that is due to the content mix? Thanks.

Yes. So, it’s a combination of those. It’s another good point. The – is it – we put the inventory stocking in there as well. That was in there in the first half of the year, the $25 million, we talked about that being part of the automotive outgrowth in the first quarter. So, if that unwinds, which we are forecasting that it will, that will come out of content. Tough to judge exactly how much is due to that versus program launch, temporary deferrals or program launch. But certainly, the $25 million unwinding would be an element of that content decline going into the balance of the year. But it’s – but that’s quantifiable. We know that’s $25 million of the overall impact.

Great. Appreciate the color. Thank you.

Thank you.

Ladies and gentlemen, we have reached the time allotted for this call. I would like to turn the conference back over to Mr. Jacob Sayer for any closing remarks. Thank you.

Thank you, Constantinos. I would like to thank everyone for joining us this morning. Sensata will be participating in the upcoming Jefferies Industrial Investor Conference on August 5, the Citigroup Technology Investor Conference on September 9 and the RBC Industrial Investor Conference on September 14. Thank you for joining us this morning and for your interest in Sensata. Constantinos, you may now end the call.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.